Saving for the Future with an IRA

After you retire, your personal savings should be your primary source of support. One great way to boost them is with an IRA. IRAs were created by Congress in 1974 as a tax deferred way for Americans—particularly Americans without company-sponsored pension plans—to supplement their social security benefits. With fewer employers offering pensions, IRAs may play an even larger role in the future.

There are two principal types of IRAs: traditional IRAs and Roth IRAs. Annual contributions to traditional IRAs may be partially or fully tax-deductible in the year in which they are made; distributions from a traditional IRA are generally taxable upon withdrawal. While Roth IRA contributions are not deductible during the year in which they are made, distributions can generally be taken tax-free. (For specific tax advice, please consult a professional tax advisor.)

A high income may affect the deductibility of your contributions to a traditional IRA and the amount you can contribute to a Roth IRA. Even if your income isn’t high enough to be an issue, there are still legal limits to the amount you can invest in an IRA per year.